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47 Test Bank for Auditing and Assurance Services 4th

Edition by Louwers

Multiple Choice Questions

The study of business operations for the purpose of making

recommendations about the efficient use of resources, effective achievement of business objectives, and compliance with

company policies is referred to as

1 A Environmental auditing

2 B Financial auditing

3 C Compliance auditing

4 D Operational auditing

To be proficient as an auditor, a person must first be able to accomplish which of these tasks in a decision-making process?

1 A Identify audit evidence relevant to the verification of assertions

management makes in its unaudited financial statements and notes

2 B Formulate evidence-gathering procedures (audit plan) designed to obtain sufficient, competent evidence about assertions management makes

in financial statements and notes

3 C Recognize the financial assertions made in management's financial statements and footnotes

4 D Evaluate the evidence produced by the performance of procedures and decide whether management's assertions conform to generally accepted accounting principles and reality

The ASB transaction objective that requires the auditor to

establish evidence that all transactions and accounts that should

be presented in the financial statements are included is?

1 A Completeness

2 B Existence or occurrence

3 C Rights and obligations

4 D Valuation or allocation.

Which of the following is not a role of the AICPA?

1 A Refine the body of professional knowledge, regulate membership

admissions, and police conduct of members

2 B Prepare and grade the uniform CPA examination

3 C License the practices of CPAs in the various states

4 D Issue public statements on practice standards

The probability that the information circulated by a company will

be false or misleading is referred to as

1 A Business risk

2 B Information risk

3 C Assurance risk

4 D Audit risk

According to the American Accounting Association (AAA), the definition of auditing includes the following statement

1 A an independent appraisal function established within an organization to examine and evaluate its activities

2 B a process of reducing to a socially acceptable level the information risk

to users of financial statements

3 C an expression of opinion on the fairness of financial statements

4 D a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events

The audit objective that all transactions and accounts that should

be presented in the financial statements are in fact included is related to which of the PCAOB assertions?

1 A Existence

2 B Rights and obligations

3 C Completeness

4 D Valuation

Which of the following is not a recommendation usually made following the completion of an operational audit?

1 A Economic and efficient use of resources

2 B Effective achievement of business objectives

3 C Attesting to the fairness of the financial statements

4 D Compliance with company policies

The audit objective that all the transactions and accounts

presented in the financial statements represent real assets,

liabilities, revenues, and expenses is related most closely to which of the PCAOB assertions?

1 A Existence or occurrence

2 B Rights and obligations

3 C Completeness

4 D Presentation and disclosure

Which of the following is the essential purpose of the audit

function?

1 A Detection of fraud

2 B Examination of individual transactions to certify as to their validity

3 C Determination of whether the client's financial statement assertions are fairly stated

4 D Assurance of the consistent application of correct accounting

procedures

The engineering department at Omni Company built a piece of equipment in the company's own shop for use in the company's operations The auditor reviewed all work orders that were

capitalized as part of the equipment costs Which of the following

is the ASB transaction assertion most closely related to the

auditor's testing?

1 A Occurrence

2 B Completeness

3 C Accuracy

4 D Classification

Assurance services involve all of the following, except

1 A Relevance as well as the reliability of information

2 B Nonfinancial information as well as traditional financial statements

3 C Providing absolute rather than reasonable assurance

4 D Electronic databases as well as printed reports

The accounting, auditing, and investigating agency of the U.S Congress, headed by the U.S Comptroller General is known as

1 A The Federal Bureau of Investigation (FBI)

2 B The U.S General Accounting Office (GAO)

3 C The Internal Revenue Service (IRS)

4 D The United States Legislative Auditors (USLA)

The goal of operational auditing is to

1 A Help managers discharge their management responsibilities and improve profitability

2 B Evaluate compliance with specific laws and regulations

3 C Reduce to a socially acceptable level the information risk to users of financial statements

4 D Express an opinion on the fairness of financial statements

Which of the following best describes the main reason

independent auditors report on management's financial

statements?

1 A Management fraud may exist, and it is likely to be detected by

independent auditors

2 B The management that prepares the statements and the persons who use the statements may have conflicting interests

3 C Misstated account balances may be corrected as the result of the independent audit work

4 D The management that prepares the statements may have a poorly designed system of internal control

The underlying conditions that create demand by users for

reliable information include all of the following, except:

1 A Transactions are numerous and complex

2 B Users lack professional skepticism

3 C Users are separated from accounting records by distance and time

4 D Financial decisions are important to investors and users

5 E Decisions are time-sensitive

Cutoff tests designed to detect credit sales made before the end

of the year that have been recorded in the subsequent year provide assurance about the PCAOB assertion of

1 A Presentation

2 B Completeness

3 C Rights

4 D Existence

In performing an attestation engagement, a CPA typically

1 A Supplies litigation support services

2 B Assesses control risk at a low level

3 C Expresses a conclusion on an assertion about some type of subject matter

4 D Provides management consulting advice

In order to be considered as external auditors with respect to government agencies, GAO auditors must be

1 A Organizationally independent

2 B Empowered as the accounting and auditing agency by the U.S

Congress

3 C Funded by the federal government

4 D Guided by standards similar to GAAS

Which of the following best describes the primary role and

responsibility of independent external auditor?

1 A Produce a company's annual financial statements and notes

2 B Express an opinion on the fairness of a company's annual financial statements and footnotes

3 C Provide business consulting advice to audit clients

4 D Obtain an understanding of the client's internal control structure and give management a report about control problems and deficiencies

Which of the following is not an ASB assertion about inventory related to presentation and disclosure?

1 A Inventory is properly classified as a current asset on the balance sheet

2 B Inventory is properly stated at cost on the balance sheet

3 C Major inventory categories and their valuation bases are adequately disclosed in notes

4 D All of the above are ASB presentation and disclosure assertions about inventory

The audit objective that all transactions are recorded in the proper period is related most closely to which of the Audit Standards Board (ASB) transaction assertions?

1 A Occurrence

2 B Completeness

3 C Cutoff

4 D Accuracy

CPA certificates and licenses to practice are issued by the

1 A AICPA

2 B States or territories

3 C AICPA Examinations Division

4 D GAO

Because of the risk of material misstatement, an audit of financial statements in accordance with generally accepted auditing

standards should be planned and performed with an attitude of

1 A Objective judgment

2 B Independent integrity

3 C Professional skepticism

4 D Impartial conservatism.

Which of the following best describes assurance services?

1 A Independent professional services that report on the client's financial statements

2 B Independent professional services that improve the quality of information for decision makers

3 C Independent professional services that report on specific written

management assertions

4 D Independent professional services that improve the operations of the client

An attestation engagement is one in which a CPA is engaged to

1 A Issue, or does issue, a report on subject matter or an assertion about the subject matter that is the responsibility of another party

2 B Provide tax advice or prepare a tax return based on financial information the CPA has not audited or reviewed

3 C Testify as an expert witness in accounting, auditing or tax matters, given certain stipulated facts

4 D Assemble prospective financial statements based on the assumptions of the entity's management without expressing any assurance

The audit objective that all balances include items owned by the client is related most closely to which one of the ASB balance assertions?

1 A Existence

2 B Rights and obligations

3 C Completeness

4 D Valuation

The risk an entity will fail to meet its objectives is referred to as

1 A Business risk

2 B Information risk

3 C Assurance risk

4 D Audit risk

The audit objective that footnotes in the financial statements

should be clear and expressed such that the information is easily conveyed to the readers of the financial statements is related most closely with which of the ASB presentation and disclosure assertions?

1 A Occurrence

2 B Rights and obligations

3 C Comprehensibility

4 D Understandability

What is the term used to identify the risk that the client's financial statements may be materially false and misleading?

1 A Business risk

2 B Information risk

3 C Client risk

4 D Risk assessment

Which of the following is an underlying condition that in part

creates the demand by users for reliable information?

1 A Economic transactions that are numerous and complex

2 B Decisions are time-sensitive

3 C Users separated from accounting records by distance and time

4 D Financial decisions that are important to investors and users

5 E All of the above

The audit objective that all transactions are recorded in the proper account is related most closely to which one of the ASB

transaction assertions?

1 A Occurrence

2 B Completeness

3 C Accuracy

4 D Classification

Which of the following is not an underlying condition that creates demand by users for reliable financial information?

1 A Remoteness

2 B Vagueness

3 C Consequences

4 D Complexity

The Sarbanes-Oxley Act of 2002 requires that the key company officials certify the financial statements Certification means that the company CEO and CFO must sign a statement indicating:

1 A They have read the financial statements

2 B They are not aware of any false or misleading statements (or any key omitted disclosures)

3 C They believe that the financial statements present an accurate picture of the company's financial condition

4 D All of the above

The definition of performance audits does not include

1 A economy audits

2 B efficiency audits

3 C financial audits

4 D program audits

The auditor's judgment concerning the overall fairness of the presentation of financial position, results of operations, and cash flows is applied within the framework of

1 A Quality control

2 B Generally accepted auditing standards, which include the concept of materiality

3 C The auditor's evaluation of the audited company's internal control

4 D The applicable financial reporting framework (i.e., GAAP in the United States)

Inquiries of warehouse personnel concerning possible obsolete or slow moving inventory items provide assurance about the ASB balance assertion of

1 A Completeness

2 B Existence

3 C Presentation

4 D Valuation

5 E Rights and obligations

Inquiries of warehouse personnel concerning possible obsolete or slow moving inventory items provide assurance about the PCAOB assertion of

1 A Completeness

2 B Existence

3 C Presentation

4 D Valuation

5 E Rights and obligations

The audit objective that all balances include all items that should

be recorded in that account is related most closely to which one

of the ASB balance assertions?

1 A Existence

2 B Rights and obligations

3 C Completeness

4 D Valuation

The PCAOB assertions made by management in financial

statements do not include

1 A Existence

2 B Compliance

3 C Completeness

4 D Presentation

The engineering department at Omni Company built a piece of equipment in the company's own shop for use in the company's operations When looking at the ending balance for the fixed

asset account the auditor examined all work orders, purchased materials, labor cost reports, and applied overhead that were capitalized as part of the equipment costs Which of the following

is the ASB balance assertion most closely related to the auditor's testing?

1 A Existence

2 B Completeness

3 C Rights and obligations

4 D Valuation

Which of the following is not included in The American Accounting Association (AAA) definition of auditing?

1 A Potential conflict of interest

2 B Systematic process

3 C Assertions about economic actions

4 D Established criteria

The process of a CPA obtaining a certificate and license in a state other than the state in which the CPA's certificate was originally obtained is referred to as

1 A Substantial equivalency

2 B Quid pro quo

3 C Relicensing

4 D Re-examination

The four basic requirements for becoming a CPA in most states are

1 A Education, the CPA Examination, experience, and substantial

equivalency

2 B The CPA Examination, experience, continuing professional education, and a state certificate

3 C Continuing professional education, the CPA Examination, experience, and an AICPA certificate

4 D Education, the CPA Examination, experience, and a state certificate

Which of the following is an example of a regulatory auditor?

1 A Internal auditors

2 B Big 4 auditors

3 C U.S Internal Revenue Service auditors

4 D Operational auditors

Which of the following is not a major element of assurance

services?

1 A Independence

2 B Improving the quality of information

3 C Improving profitability of the client

4 D Improving the context of information

Which of the following is not a PCAOB assertion about inventory related to presentation and disclosure?

1 A Inventory is properly classified as a current asset on the balance sheet

2 B Inventory is properly stated at its cost on the balance sheet

3 C Major inventory categories and their valuation bases are adequately disclosed in notes

4 D All of the above are PCAOB presentation and disclosure assertions about inventory